TaxTMI 
TaxTMI 
2000 (2) TMI 843
X X X X Extracts X X X X
X X X X Extracts X X X X
....d the claim for the deduction in respect of rent of Rs. 8,35,061 which included the enhanced rent claimed by Bombay Port Trust and Northern Railway from the assessee of Rs. 6,20,728 as per the following details : - Owners of the land Total Rental liability for the year Part payment during the year Unpaid Amount B.P.T. Wadala 3,72,367 89,551 2,82,816 N. Rly. Shakurbasti 4,23,074 85,162 3,37,912 Amount directed to be disallowed by the CIT, Bombay City II 6,20,728 The assessee had been a lessee of certain land belonging to Bombay Port Trust and Northern Railway and it put up some oil storage tanks on the leasehold lands for carrying on its business of distributing oil. In the year of account relevant for the assessment year 1987-88, the lessors sent notices to the assessee-company enhancing the rent and the assessee disputed the enhancement of the rent before various fora inclusive of the courts. The CIT was of the view that as the enhancement of rent was disputed by the assessee-company, there was no accrued liability for the payment of the enhanced rent and so the order of the Assessing Officer allowing deduction for the above sum of Rs. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....vision Bench of the High Court which has been disposed of by the judgment dated 12-3-1993. The Division Bench suggested to the Port Trust to revise the decision taken for increase of lease rent and to reduce the burden upon the lessees, and in pursuance of this direction of the Hon'ble Bombay High Court, the Bombay Port Trust filed another compromise proposal. The Hon'ble Bombay High Court considered and upheld the compromise proposals of the Port Trust and against this judgment of the Hon'ble Bombay High Court some of the aggrieved lessees, who included the original writ petitioners as well as some intervenors, filed special leave petitions before the Hon'ble Supreme Court and the Apex Court vide the abovementioned order remitted the matter to the Hon'ble Bombay High Court with the following directions : - "Having regard to the aforesaid submissions urged on behalf of the appellants, we are of the view that it is necessary that the 'Compromise Proposals' submitted by the Port Trust are considered by the Division Bench of the High Court in the light of the reasons given by the learned single Judge and submissions that are made by the lessees in support of the said judgment....
X X X X Extracts X X X X
X X X X Extracts X X X X
....railway administration and the Bombay Port Trust in the year of account enhancing the respective lease rents and simply because the assessee has disputed the enhancement before the courts it cannot be said that there is no liability for the payment of the enhanced rents. In support of this proposition, the learned counsel has relied upon the following decisions : - (1) Calcutta Co. Ltd. v. CIT (1957) 37 ITR 1(SC). (2) Kedarnath Jute Mfg. Co. Ltd. v. CIT (1971) 82 ITR 363(SC). (3) CIT v. Navbharat Nirman (P.) Ltd. (1983) 141 ITR 723/(1982) 9 Taxman 174(Delhi). (4) Kundan Sugar Mills v. CIT (1977) 106 ITR 704(All.). Finally, the learned counsel for the assessee pleaded that the entire issue regarding deductibility of the enhanced rent has been considered by the Assessing Officer while completing the assessment under section 144(3) and so the action under section 263 taken by the CIT is based only on a mere change of opinion and is not permissible in view of the decision of the jurisdictional High Court in the case of CIT v. Gabriel India Ltd. (1993) 203 ITR 108(Bom.). 6. The learned Departmental Representative on the other hand pleaded that t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....7-88 as the matter was under dispute. So far as the payment to the railway administration is concerned, the assessee was contesting it before the railway authorities, as is evident from the proceedings of the Estate Officer of the Railway Administration dated 4-12-1996 in which the Accountant of the assessee-company was cross examined, which is at pages 35 to 38 of the Assessee's Paper Book (APB) and it reads as follows : - "Union of India v. (Western India Oil Distributing Co. Ltd.) Present :Sh. K.D. Sharma on behalf of U.O.J. and Sh. S.K. Singla, Advocate with Sh. I.V. Patel for the Respondent. Proceedings cum orders sheet Statement of Shri I.V. Patel, Accountant of the Respondent Company. On S.A. I have filed my affidavit on behalf of the Respondent in evidence. I reaffirm the contents deposed by me in that affidavit and state that the facts contained therein are all correct. My affidavit may be read as my examination in chief. Cross examination by the Applicant's Counsel. At present, I have not brought the authority from the Respondent Company to depose in the present cas....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... then made were reasonable. The Railways were revising after every five years. Q. The word 'reasonable' has not been mentioned in the agreement. Ans. Yes, it is not there. It is correct that the Respondent Company has not paid the revised licence fee as claimed by the Railway Administration. It is correct that as a consequence of non-payment of the revised licence fee, the Railway Administration has terminated the licence. Q. After the termination of the licence in respect of the suit land, the respondent company is an unauthorised occupant on the suit land, what have you to say ? Ans. In my opinion, we are not unauthorised occupant. At the time of entering into the agreement, the Railway Administration had taken one year's licence fee as deposit, which they have not returned, hence we are not unauthorised. The Railway Administration has been renewing the licence after termination from time to time again said only once. I have not brought that letter to substantiate my contentions but the same can be produced. Q.I put it to you that after the termination of the licence, you have no legal authority to remain in occupatio....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he assessee where the liability itself is disputed. The decision of the Apex Court in the Kedarnath Jute Mfg. Co. Ltd. (supra) is altogether on a different footing inasmuch as the issue involved therein was about statutory liability for the payment of sales tax. Similar is the position in the case of Kundan Sugar Mills (supra) considered by the Hon'ble Allahabad High Court which related to the liability for the payment of additional price of sugar under the Sugar Control Order, which is a statutory provision. So we are of the view that the decisions relied upon by the learned counsel for the assessee are all distinguishable. 9. We find that the issue is squarely covered against the assessee by the decision of the Hon'ble Allahabad High Court in the case of Swadeshi Cotton Mill Co. Ltd. (supra) which had to consider the deduction of a disputed contractual amount. The relevant portion of the head note of this decision reads as follows : - "Where the assessee follows the mercantile system of accounting the quantification of ascertainment cannot postpone accrual of a statutory liability. Whether the assessee is entitled to a particular deduction or not, in the case of a sta....
X X X X Extracts X X X X
X X X X Extracts X X X X
..... Burlop Commercial (P.) Ltd. (1993) 200 ITR 606 in which it was held that damages for breach of contract are allowable in the year in which the award of the arbitrator is received and not in the relevant assessment year in which the breach took place. By way of contrast to these decisions, the decision of the jurisdictional High Court in the case of CIT v. Central Provinces Manganese Ore Co. Ltd. (1978) 112 ITR 734(Bom.) may be noticed. In this decision, the Hon'ble Bombay High Court held that a statutory liability of an assessee following the mercantile system is allowable in the year in which it arises even though it is disputed by the assessee. So it appears that there is a clear distinction so far as the year of allowability is concerned between a disputed statutory liability and a disputed contractual liability. In the case of CIT v. Dalmia Dadri Cement Ltd. (1992) 195 ITR 290, the Hon'ble Delhi High Court held that it is not an invariable or inflexible rule that a contractual liability has to be allowed only when the dispute is settled. However, it is noteworthy that in this decision, the Hon'ble Delhi High Court which was considering a claim relating to the distribution of ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ssion we have to hold that the entire enhancement is disputed and as such the quantum of rent payable out of the enhancement was not ascertainable. 10. As mentioned above, it cannot be said that the lease agreements entered into by the assessee either with the railway administration or with the Bombay Port Trust are like statutes. Even though the licence agreement with the railway administration dated 16-1-1961 gives the right to the railway administration to enhance the rent as noted hereinabove, such a right can be assailed on various grounds, inclusive of arbitrariness and unreasonableness. The assessee has taken this ground in the dispute raised by it and so it has to be held that the disputed rent being only in the context of a contract, cannot be equated with a statutory liability. So we are of the view that the deduction for the enhanced rent can be allowed only in the year/years in which the dispute is amicably settled or otherwise adjudicated upon by a competent court of law. It is not allowable in the assessment year 1987-88 and so to the extent the Assessing Officer allowed deduction for the amount of Rs. 6,20,728, there is an error in the order of assessment and also....